Liz Looks at: Early Year Announcements

By: Liz Young · February 22, 2024 · Reading Time: 4 minutes

Lay Off the Optimism

The labor market has been a standout overachiever in macro data this cycle, and continues to send signals of stability, at least according to the national numbers. A phenomenon that seems to occur every year is a string of layoff announcements in the first couple months as companies clear the deck and start a new budget year by “right sizing” their workforce.

This year has been no exception, and the headlines have done their job to make these announcements sound juicy. Many of the companies that have made notable layoff announcements are household names, which can sensationalize the news just by sheer familiarity with the brands. Companies such as UPS (UPS), Amazon (AMZN), Citigroup (C), Cisco (CSCO), Microsoft (MSFT), and Nike (NKE) are among the names on that list.

This got me wondering whether this year has had more layoff announcements than other years, or if the headlines are just doing a good job of keeping them top of mind. Although January 2024 has seen fewer layoff announcements than January 2023, the number was still higher than all other Januarys since 2009.

In a year when the consensus narrative has become that the economy is strong and resilient, inflation is putting less pressure on costs at the company and consumer level, a higher level of layoff announcements than what’s “normal” seems a bit contradictory.

This begs the question: Are companies seeing cracks in demand that warrant job cuts, or was the workforce still bloated from the post-pandemic boom? A labor market that was historically tight led companies to hang on to their workers at all costs out of fear that they wouldn’t be able to find new ones; perhaps this is just a normalization of a too-tight labor market.

But it’s not just that the absolute level is high, it’s that the composition of where the layoffs are coming from is more diversified than in previous years. That could suggest the layoffs are broad-based, which is more concerning than being able to explain them away as concentrated in one industry with unique circumstances.

Of course, each company’s reason for engaging in layoffs is different, and not all of those reasons are bad, so it’s impossible to lump them all into the same “warning” bucket. But this is a data point that at least suggests labor markets may not be as strong as we think.

Location, Location, Location

Turns out, your view of the labor market depends on where you live. If the consensus view has been that unemployment has stayed low, there are a healthy amount of jobs being added to the economy each month, and there are plenty of jobs available. That’s true on the national level when all 50 states are added together into one number. However, it’s not true in some of the states with the largest worker populations.

The three states on the left side of the chart above account for 21% of the U.S. worker population and have seen steadily rising unemployment rates, as well as fewer jobs added. Meanwhile, the three states on the right side have seen steady unemployment rates, or muted increases, and account for 19% of the U.S. worker population.

The national data published by the Bureau of Labor Statistics that aggregates all states still shows strong results despite these regional differences. That may be a decent read of the labor market at large, but it’s clear that certain areas are having a different experience.

What’s more is that rather than looking at the state-level data through the lens of “only a few big states are losing jobs”, a comprehensive picture shows that it’s shifting to “only a few big states are adding jobs”.

This wouldn’t necessarily be a concerning quirk in the data except that the states showing cracks are some of the largest and most economically important ones in the country. Time will tell if these big states will reverse course and stabilize, or if other smaller states will follow suit and weaken. Some investors have pointed to the state unemployment data as an inconsistency that warrants attention, and I would agree.

For now, these chinks in the armor simply raise an eyebrow. Later in the year we’ll find out if they were bigger warning flags.


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